No Turn On Red

You know, yesterday I went down to my local mall and I took a walk around JC Penney. I have to say, I think they’ve really pulled things together. From the merchandise to the in-store experience, the store looked better than I have seen it in a long time.

Missy and Juniors looks great. I was really impressed by how nice the apparel looked. Lines like a.n.a., Bisou Bisou and Miss Bisou looked really sharp. The euro sizing on the Miss Bisou jeans is a very nice touch. However, I don’t think they are offering the same sort of excitement on the male side of the ball.

With how nice the stores are looking, it’s no suprise that their second quarter results were so strong.

J. C. Penney Company, Inc. (NYSE:JCP) reported record second quarter operating profit and earnings. Operating profit increased 27.2 percent to $271 million from $213 million last year and improved 100 basis points to 6.4 percent of sales. Operating profit improvement was driven by strong sales performance, coupled with improved gross margin and leverage of selling, general and administrative expenses. Second quarter 2006 earnings per share from continuing operations increased 63.0 percent to $0.75 from $0.46 last year. Earnings per share in both years include the benefits of one-time tax credits as well as the effects of the Company’s ongoing share repurchase program.

“The Company had an excellent second quarter, with good customer response to fine jewelry, children’s and women’s accessories, as well as a solid rebound in apparel categories, particularly women’s,” said Myron E. (Mike) Ullman, III, chairman and chief executive officer. “We have broad-based momentum entering the back half of the year and are confident in our competitive positioning. While we are cautiously optimistic about the opportunities that lie ahead, we believe that it is prudent to plan conservatively in the current environment.”

Ullman added, “We continue to improve the fundamentals of our existing businesses and are poised for the acceleration of our new store growth. In the third quarter, we will open 25 stores, with 17 in the new and successful off-mall format. Twenty of these stores will open on October 6th, the most store openings in a single day in the Company’s recent history, and beginning in 2007, we plan to open 50 stores per year.”

(The full press release is here.)

Some notes from the conference call:

Seems that they are aggressively targeting former May shoppers who may feel lost in the Federated/Macy’s rebranding.

Aggressively targeting teens through sponsorship of the MTV Video Music Awards and the Teen Choice Awards. Also exploring and utilizing better opportunities in integrated marketing.

Still looking towards 50 door expansion in 2007 with the majority of the sites being in the off the mall format.

Sephora will be rolled out in 5 new stores this year with a small rollout in FY2007 (half new and half exisiting stores) with the majority of the rollout in FY2008. This is due to many levels of integration that need to happen between Sephora and JC Penney. This is also due, in part, to their desire to not overwhelm the smaller distributors and providers of Sephora product.

Early response to BTS season is positive, as well as early response to new denim offerings (like increased offerings of skinny leg and straight leg jeans).

Like I said, I think that they can continue to improve their Men’s offerings, but they’ve got a good solid base to build from. Other areas of the store are improving and customers are responding well. With economic worries looming, I think they can have a solid second half.

Move coverage from Bloomberg, MSN.com, and Reuters.

See also: Retail roundup - Q1 results, JC Penney.

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